Think Your Entertainment Expenses Are Deductible? The CJEU Says Think Again!

März 13, 2026 EU-Umsatzsteuer-Update, Einblicke

A recent judgment issued 12. March 2026 from the Court of Justice of the European Union highlights a critical VAT issue: can businesses recover VAT on entertainment and hospitality expenses?

In Randstad España (Case C-515/24), the Court clarified the limits of input VAT deduction and how far Member States can go in denying recovery on entertainment costs. For businesses and VAT practitioners, the ruling is a timely reminder that not all business expenses generate recoverable VAT even if they are linked to taxable activity.

Derzeitige Situation

The dispute involved Randstad España, a recruitment and HR company, which incurred costs for client hospitality and events to build relationships. While these were fully deductible for corporate tax purposes, Spanish VAT law denied input VAT recovery on “representation or entertainment expenses”, even when linked to taxable activity.

Randstad challenged this, arguing it conflicted with the EU principle that VAT incurred for taxable business activities should be deductible. The matter ultimately reached the Supreme Court of Spain, which referred the issue to the CJEU.

The Question

The Court was asked: Can a Member State deny input VAT deduction on entertainment expenses even when linked to taxable business activity?

The legal debate focused on Article 176 of the EU VAT Directive, the standstill clause, which allows Member States to retain historic exclusions from VAT deduction until EU-wide harmonisation.

Spain introduced the restriction at the exact same time it joined the EU in 1986, so the Court had to decide whether it still fell within this clause.

The Decision

The CJEU ruled that EU law does not prevent Member States from denying input VAT deduction on entertainment or representation expenses if the exclusion falls under Article 176’s standstill clause.

In short: Spain can maintain its rule denying input VAT deduction on entertainment costs, even when the expenses are linked to taxable business activities.

Why This Matters

While the case is specific to Spain, the implications are broader:

  • Many EU countries restrict VAT recovery on entertainment-type expenses (client hospitality, networking, sports/cultural events).
  • Expenses lie at the intersection of VAT neutrality and prevention of private consumption.
  • Businesses may find that costs fully deductible for corporate tax purposes still generate irrecoverable VAT.
  • The case highlights the ongoing lack of harmonisation across the EU, meaning rules differ by country.

Key Takeaways

Businesses should:

  • Review VAT recovery policies for entertainment and representation expenses
  • Ensure finance teams properly classify non-deductible VAT
  • Consider any cross-border differences in VAT treatment

Proper planning prevents hidden VAT costs and reduces risk during audits.

Call to Action

 If your organisation regularly incurs client entertainment, hospitality, or networking expenses, now is the time to review how this VAT is being treated.  Contact our experienced VAT Consultants for a review of policies, classifications, and country-specific rules around entertainment VAT deductibility rules.

 

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